Moving Funds Offshore and Onshore

When it comes to investment there are a number of investment strategies that can be employed by the everyday investor. One of which is investing funds (and in some cases, people’s nest eggs) offshore. This – according to Investec – has a number of benefits including “investment diversification, global growth exposure, hedging against rand depreciation and the mitigation of SA’s political and economic risks”.

And for the South African who is looking for diversification (or otherwise), the overseas markets look enticing. What with everyone and their second cousin twice removed moving to Australia, “financially emigrating” (in the form of a foreign investment allowance) may prove to be the best of both worlds – enjoy the beauty and lifestyle that is South Africa but mitigate risk of rand depreciation and political and economic instability by investing funds offshore.

Sure, it sounds pretty straightforward but for the everyday South African investor, it becomes essential to understand the process that’s involved with investing funds offshore or conversely bringing funds back to South Africa (on shore) and converting those funds back into rands and therefore learn the skill that is the optimisation of your financial transactions.

It must be noted however that South Africa’s currency market, with its unique set of rules and regulations, presents both challenges and opportunities. But don’t fret for in this article, we will delve into two fundamental concepts – AIT (Approval of International Transfers) and FIA (Foreign Investment Allowance) – before exploring the crucial role of currency hedging, particularly in the context of exchange controls.

Let’s embark on this financial exploration together, where knowledge empowers and careful planning leads to financial stability.

Because at Kuda FX, we are all about empowering and enabling our clients.

Investing your funds offshore

In South Africa, individuals keen on moving funds offshore should acquaint themselves with the regulations governing these financial transactions. Three significant concepts to grasp are Single Discretionary Allowance (SDA), Foreign Investment Allowance (FIA) and Approval of International Transfers (AIT), both of which dictate not only how much money you can invest overseas but also how you can go about investing money overseas.

Who can utilise their SDA, FIA and AIT?

Any South African resident taxpayer over the age of 18 can qualify for these allowances, provided their tax returns are up-to-date and they are in good standing with SARS. It’s crucial to note that your tax clearance certificate remains valid for 12 months. Take note that the duration of your tax clearance certificates may not align with your annual allowances, which expire at the end of each calendar year.

Understanding (and knowing) the timing of your financial transactions is important when making investments offshore. If you’re unsure of timing, please contact us at Kuda FX and we will be happy to assist you.

Single Discretionary Allowance (SDA)

The SDA is a monetary limit established by the South African Reserve Bank, allowing South African residents to make overseas payments and investments up to R1 million per calendar year. Exceeding this amount requires supporting documents, and non-compliance may result in substantial fines. The SDA covers a wide range of expenses, including travel, study allowances, donations, gifts, loans, maintenance, and investments, among others. However, each category has its own specific regulations that must be adhered to.

(To learn more about the SDA, please follow this link to our previous article).

Foreign Investment (or Capital) Allowance

South African residents or South African citizens living abroad who have not yet formally emigrated are typically allowed to invest up to R10 million per calendar year abroad.

To send more than R1 million offshore, you’re going to need AIT (Approval for International Transfer) from SARS. This certificate is valid for 12 months and it allows you to transfer up to R10 million.

(To learn more about the SDA, please follow this link to our previous article).

Approval of International Transfers (AIT) Process

For those looking to transfer or invest amounts exceeding the SDA limit, the AIT comes into play. It permits the transfer of up to R10 million abroad during each calendar year, subject to specific requirements. To make use of this allowance, you must obtain a “Tax Clearance Certificate – Approval of International Transfers” (TCC) (link to application form here) issued by the South African Revenue Service (SARS) and ensure compliance with various conditions. Supporting documents, such as evidence of the source of funds, asset, and liability statements for the past three tax years, and documentation submitted to SARS, may be subject to verification.

Investment Limits

Generally, South African tax residents can invest up to R11 million per year offshore, including the R1 million SDA and R10 million Foreign Investment Allowance. It’s important to note that no tax clearance is required for the R1 million SDA, while moving your Foreign Investment Allowance offshore necessitates a tax clearance certificate from the South African Reserve Bank. The AIT does not have to be the full R10 million; you can apply for an amount based on your available source of funds, even as low as R500,000.

Also note that if you wish to convert more than R11 million per year, a special tax clearance process referred to as the Special Clearance Allowance (discussed in our previous article) needs to be submitted to SARS and SARB, Kuda FX team can also assist with this process.

Currency Hedging: Managing Onshore and Offshore Funds

You have gone through the process of obtaining all the necessary documents what’s next?

Now, let’s explore how currency hedging fits into the picture. Currency hedging is a proactive strategy to mitigate risks associated with fluctuating exchange rates. In South Africa, Kuda FX, a specialized foreign exchange risk division, offers tailored solutions to help individuals manage their currency risk.

Kuda FX collaborates closely with clients to identify their unique risk exposure and establish target exchange rates aligned with their financial objectives. Our approach combines strategic timing of forward cover bookings with flexibility in risk management, ensuring that a portion of funds remains open in the market to address unforeseen events.

For individuals seeking to secure favourable exchange rates for future transactions, Kuda FX provides forward cover options. Clients who meet qualifying criteria can use Kuda’s facility in partnership with Investec Bank. This unique offering allows individuals to lock in favourable rates, providing stability for future financial transactions.

The benefits of currency hedging are twofold –

  • it optimizes the value of funds for individuals moving money offshore, and
  • protects profit margins for those repatriating funds onshore, safeguarding their earnings.

Kuda FX’s real-time risk management strategies enable individuals to make informed decisions, effectively managing currency risk as market conditions evolve.

As a South African resident taking money out of the country or bringing funds back into the country, it involves a careful consideration of timing, diversification, understanding AIT and FIA, and possibly submitting special requests to SARS and SARB. Partnering with an experienced intermediary like Kuda FX is key to making your financial transactions smooth and hassle-free. Remember, in the world of currency exchange, the golden rule is to be content with the rates you pay or receive. By following these guidelines and using the services of Kuda FX, you can navigate the financial landscape with confidence and peace of mind.

If you have any queries on the information we have set out above, please feel free to get in touch with us.

We cannot wait to help you with all your forex needs!

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